European Union Member States - The World Bank and EU Integration

In response to Agenda 2000 issued by the EC in June 1997, a Memorandum of Understanding (MoU) was signed between the World Bank (WB) and the European Bank for Reconstruction and Development (EBRD) in April 1998. The European Investment Bank (EIB), the EU's "in house bank", also agreed to closely collaborate with the MoU signatories. The MoU was later also signed by the International Finance Corporation (IFC), the Nordic Investment Bank (NIB) and the Nordic Environment Finance Corporation (NEFCO).

In March 2000, the MoU - originally covering the "Poland and Hungary Aid for the Restructuring of the Economies" (PHARE) pre-accession financial instrument on the EC side which was and is helping all EU candidate countries in their preparation to join the EU - was extended to the Instruments for Structural Policies for pre-Accession (ISPA) and the Special Accession Programme for Agricultural Development (SAPARD).

In June 2003 the MoU was amended, once again, to include the Black Sea Trade and Development Bank (BSTDB) as a signatory to the MoU. Moreover, the revised MoU also provides for cooperation with new member and candidate countries which were previously not included, such as Cyprus, Malta and Turkey. It also keeps the MoU open for cooperation in other countries which might become candidate countries at a later stage, such as Croatia. Furthermore, the MoU provides a platform for cooperation in the human development sector as well (education, health and pension reform).

In April 2006 the latest amendment of the MoU was agreed. This amendment was necessary following the 2004 enlargement and the inclusion of the Western Balkan countries as potential candidate countries.

The parties to the MoU meet regularly in the context of the so-called working and high level groups.

In May 2000, the World Bank signed a similar MoU with the Council of Europe Development Bank (CEB) to increase cooperation in selected EU candidate countries (where the CEB is or plans to be active).

Memorandum of Understanding (MoU) between the EC, EBRD, IBRD, IFC, NIB, NEFC, CEB, BSTDB (April 1998, amended in March 2000, June 2003, and April 2006).

Memorandum of Understanding (MoU) between the CEB, IBRD, IDA (May 2000).

Until the successive European Union (EU) enlargements in May 2004 and January 2007, the World Bank’s support to ten Southeast, Central European and Baltic accession countries for the past several years focused on assisting them in meeting their pre-accession reform needs. Currently, the World Bank cooperates closely with the European Commission (EC) in assisting the new Member States, among other, in building their capacity to use EU structural and cohesion funds. For the remaining candidate countries (Croatia, Macedonia and Turkey), the Bank assists with complementary projects and provides analytical and advisory to support reforms that facilitate accession to and integration with EU. Looking ahead, the World Bank will continue its efforts to provide relevant assistance to the in the new EU member states, candidate and the potential candidate countries of the Western Balkans (Albania, Bosnia and Herzegovina, Serbia, Montenegro and Kosovo).

Over the past 20 years, the World Bank has provided substantial assistance to ten of the twelve countries that joined the EU in May 2004 and January 2007, reflected in the acronyms EU8 and EU10, the latter including the new member states Bulgaria, and Romania, as well as Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic, and Slovenia. (The situation for Cyprus is somewhat different, as the Bank extended assistance to the country only up to the mid-1990s.) Since the late 1980s, aid to these countries has included lending totaling US$11.1 billion for 143 operations; and technical assistance (TA), for economic and social transformation and convergence. Slovenia, the Czech Republic, Estonia, Latvia, Lithuania and Hungary have since graduated from World Bank borrower status. Poland and Slovakia continue to be eligible for Bank financing if they so wish.

The World Bank has to date provided sizeable support to Bulgaria (US$ 1.821 billion) and Romania (US$ 5.4 billion), the two countries which joined the EU in 2007, as well as to Croatia (US$ 2.2 billion) and Turkey (US$ 17 billion) to assist them in their efforts to meet the EU accession requirements. Detailed examples of support for these countries are highlighted later in this paper. Strategic plans ensure that Bank support is closely integrated into overall country development plans, with accession to the EU being the prime development objective. (see Box 1).

World Bank lending for the new member states as well as the EU candidate and potential candidate countries supports growth and employment, competitiveness, social inclusion, and poverty reduction – all areas where the institution can bring unique global experience and advice to bear. To this end, the Bank is striving to respond to middle-income country demands which the EU10 and the candidate/potential candidate countries belong to. There is also greater use of national procurement standards and fiduciary controls in the design and implementation of Bank-supported projects. Termed as a move toward ‘Country Systems,’ this change was approved recently by the World Bank’s Board of Executive Directors. In Romania, the use of programmatic approaches for the Social Inclusion (FY06) and Transport Sector Support (FY07) operations has helped complement the financial and technical assistance provided by the EU, and an increased reliance on country systems.

More information on the World Bank's Role in the EU10, candidate and potential candidate countries can be found here.

The World Bank has supported the accession countries with wide-ranging financial and pre-financing instruments as well as analytical and knowledge services, according to the countries' needs.

From the beginning of the EU enlargement process, the EU candidate countries have asked the World Bank to focus its support on their efforts to become EU members. To this end, the World Bank's country assistance strategies (CASs) for the EU candidate countries review in detail how such support should be structured, while taking into account the support provided by the EU as well as the other European financial institutions.

As is the case for all World Bank CASs, these are discussed with concerned World Bank member governments; civil society representatives are also consulted. In the case of the EU candidate countries, the World Bank has also been regularly consulting with the EC. The CASs, of course, take account of and support the EU accession agenda, including the acquis communautaire. They also focus on overall economic development, growth, social inclusion, and poverty reduction in these countries.

The World Bank has been assisting its Central, Eastern and Southeast European clients through lending operations directed at helping candidates meet EU accession-related infrastructure needs, as well as implement related EU norms and directives. The World Bank has also supported, and still is supporting in a number of the current and future candidate countries, projects and activities which are not explicitly or fully covered by the "acquis communautaire", such as support for education, health, social development and protection, and the knowledge economy. In recent years, these topics have received increasing attention from the EU and the EC.

To learn more about the CASs or to review them, please click here.

Using Analytical Capabilities to Evaluate the Challenges Faced by EU Candidate Countries

The World Bank's Country Economic Memoranda (CEM) have been one way for the World Bank to use its analytical capabilities to evaluate the challenges faced by EU candidate countries to meet EU membership requirements - they still are in the case of those countries where the EU membership negotiations process is expected to start soon, such as Croatia and Turkey.

Emphasis is put on the coherence and proper sequence of reforms, management of the fiscal costs of meeting EU requirements and the examination of future strategies to help these countries maximize the benefits of joining the EU and minimize costs. Here again, close consultation has taken place and still does so with the European Commission. To date, the World Bank has completed CEMs for Poland, Slovak Republic, Estonia, Slovenia, Hungary, the Czech Republic, Bulgaria and Romania.

The World Bank is also assisting through cross-country analysis to derive lessons for all acceding countries, including through the establishment of appropriate networks among candidate and with EU member countries.

To ensure consistency in respective macroeconomic analyses and policy advise, the European Commission consults closely with the World Bank, the IMF, OECD, the EBRD and EIB during the preparation of its economic chapter of the annual "Regular Reports" which assess the candidate countries' progress in meeting the EU membership requirements. The EC issued the 2004 Regular Reports for Bulgaria, Romania and Turkey as well as the Croatia Pre-Accession Strategy on October 2004.

Examples of projects and programs include:

>> Poland - In Poland, World Bank funding for rural development has enhanced rural roads (Roads project) and education, and built-up regional and local administrative capacity.

>> Hungary - In Hungary, World Bank assistance for enterprise and financial sector reform helped create the conditions for private sector-led growth while support to pension reform helped the overhaul of public finances.

>> SlovakRepublic- In the Slovak Republic, the World Bank is supporting a major overhaul of the national health system with advice and lending.

>> Latvia - In Latvia, World Bank support helped reduce pollution in the Baltic Sea by funding the improvement of waste water treatment facilities.

>> Slovenia - In Slovenia, World Bank support brought together the key government agencies and the court system to implement a modern real estate registration system.

Examples of analytical work and advice include:

>> Country Economic Memoranda - In most of the new member States, World Bank economic analysis in the form of Country Economic Memoranda clarified the costs and benefits of macroeconomic reforms needed to meet EU requirements during these countries' EU accession process.

>> Modernizing the Financial Sector - In the Czech Republic, Poland and Lithuania, the World Bank advised on modernizing the countries’ financial sectors.

>> Building “Knowledge-based” Societies - In Lithuania, Latvia and Poland, the World Bank helped design strategies to build more competitive “knowledge-based” societies.

>> Improving Governance - In Latvia, the World Bank supported reforms that address corruption, civil service improvements and public expenditure management.

>> Modernizing Transport Networks - In the Baltic States, the World Bank advised on modernizing transport networks.

>> Improving budget management - Public expenditure reviews in countries such as Poland and Slovakia have helped improve budget management and promote accountability in government administration.

>> Identifying pockets of poverty - Poverty analysis work in Poland and Latvia has identified pockets of poverty as a first step toward better- targeted social welfare programs.

Supporting the integration of the new member states after enlargement

Going forward, the focus of the new member states will be on implementing the provisions of the acquis and to also make good use of EU Structural and Cohesion Funds.

These “structural funds” are intended to bring improvements to economically depressed and socially deprived areas and to narrow the differences in income between the new and current EU members as fast as possible and, thus, contribute to greater convergence among member states.

In response to specific interest from the new member states, the World Bank is prepared to assist in those areas where the World Bank’s global expertise or past country experience creates a comparative advantage. While the availability of EU structural funds will likely lower demand for World Bank finance, some of the new member states have already voiced interest in continuing World Bank advice and support to build the professional capacity of their public services.

World Bank financial support would also be available to cover part of the “counterpart” financing which the new member states must contribute to projects funded with structural funds. The latter cover between 50 and 85 percent of project costs. In addition to covering the difference, the new members must often pre-finance investments for subsequent reimbursement from the structural funds. World Bank funds would also be available for this purpose.

Like all other EU member states, the eight Central European and Baltic countries must comply with the EU’s Social Inclusion Policy. This policy sets out goals to increase social and economic participation and to help vulnerable groups. To help fulfill these commitments, the World Bank is working with the Central European countries, the EU Commission, the Open Society Institute and other European partners to promote the inclusion of Roma into society and, more specifically, to improve educational opportunities for Roma youth through a Roma Education Fund which is being established.

Southeastern Europe, the World Bank and the Stabilisation and Association Process (SAP)

The international community and the countries of the SEE region have committed themselves to make a determined effort to create the conditions for peace, stability and prosperity in South Eastern Europe. This approach is elaborated in the Stability Pact, which was signed by the countries in the region and the international community.

The major donors have assigned to the World Bank and the European Commission the responsibility of coordinating economic assistance to the region. During the December 2002 Copenhagen summit, the European Council also "reaffirmed the European perspective of the countries of the Western Balkans in the Stabilisation and Association Process (SAP)". The stabilization agenda is set by the European Commission, and supported by international financial institutions, bilateral donors and the IMF. The World Bank and the European Commission are strongly committed to continue to foster close donor cooperation so as to enhance the effectiveness of aid as the countries prepare for and implement the Stabilisation and Association Agreements.

In this context, the European Commission (EC) and World Bank held a joint seminar in June 2002 to formally introduce and discuss the concept of Poverty Reduction Strategy Papers to the EC and inform the World Bank about the state of play with regard to the SAP. A succession of video and audio conferences were held in April and May 2004 to discuss the SAP Reports of the EC for 2004 and the assistance programming for the SEE countries of the World Bank and the Commission for 2005-2006. The two institutions will continue to consult systematically about conditionality, targets and monitoring tools, especially but not exclusively in the context of the WB Country Assistance Strategies and EC Country Strategy Papers. Both institutions also cooperate on regional infrastructure and energy, a process which also involves other IFIs and bilateral donors. In addition, the World Bank and the European Commission have started to investigate ways of improving the coordination of Public Sector reform in SEE. They pursue common objectives to build up strong and transparent institutions and administrative capacities capable of implementing EU standards and delivering public services efficiently. At the June 2003 EU-Western Balkans summit, the "Thessaloniki Agenda" was adopted, which included proposals to enrich the current SAP through the provision of new European Integration Partnerships.

The proposal of the European Commission for the first European Partnerships was submitted to the EU Council of Ministers at the end of March 2004 and endorsement is expected in May/June 2004. Inspired by the pre-accession process and tailor-made to each country's needs, the partnerships identify priorities and obligations to be fulfilled, and provide the basis for assistance planning under the CARDS (Community Assistance for Reconstruction, Development and Stabilisation) programme. CARDS allocations for SEE for the period 2002-2006 amount to €4.65 billion. Subsequent to the adoption of the European Partnerships by the EU Council of Ministers, each country will draw up a national action plan for implementation of the partnerships, that will provide a clear agenda against which to measure progress

For more information on the partnerships and international assistance to the region, see the joint website of the European Commission and the World Bank on Economic Development and Reconstruction in South East Europe: www.seerecon.org.

As an important signal to the Western Balkans that they have a true EU integration perspective, as of the assumption of office of the new European Commission, which took office on November 22, 2004, responsibility for these countries has shifted from the Directorate General for External Relations (DG Relex) to the Directorate General for Enlargement (DG Enlargement).

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The World Bank and EU Integration